William C. Beretta - Page 17

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            fraudulently preparing and filing a 1987 Federal tax return                                 
            claiming a refund under the name of Chris Arias.  Mr. Beretta                               
            received $2,000 for his part in the scheme.  Gross income                                   
            includes funds derived from legal and illegal sources.  Rutkin v.                           
            United States, 343 U.S. 130 (1952).  Accordingly, the $2,000                                
            should be included in petitioner's income for the 1988 taxable                              
            year.                                                                                       
            Issue 4.  Capital Losses                                                                    
                  We next must decide whether petitioner is entitled to                                 
            claimed capital losses for the years at issue.  On his 1987 tax                             
            return, petitioner claimed a $2,558 capital loss from the sale of                           
            stock in the Strong Total Return Fund.  We have already decided                             
            that petitioner was the owner of the mutual funds for Federal tax                           
            purposes.  At trial, petitioner presented documentary evidence                              
            substantiating the claimed loss.  We find that petitioner is                                
            entitled to the $2,558 capital loss.  Sec. 165(f).                                          
                  Petitioner claimed capital losses of $300, $3,000, $3,000                             
            and $2,400 from bad debts for the tax years 1987, 1988, 1989, and                           
            1990, respectively.  The bad debts were the result of payments                              
            made for liabilities to creditors of the restaurants for which                              
            Mr. Beretta was a guarantor.  Payments by an individual on a                                
            guaranty of a debt which are not then repaid to the guarantor may                           
            give rise to a bad debt deduction if the debt to the guarantor is                           
            worthless.  Tolzman v. Commissioner, T.C. Memo. 1981-689; sec.                              





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